Reference no: EM132573192
Question - On January 1, 2017, Novotna Company purchased $400,000 worth of 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semi-annually, on July 1 and January 1. The bonds mature on January 1, 2022. Novotna Company uses the effective interest method to amortize the discount or premium. On January 1, 2019, to meet its liquidity needs, Novotna Company sold the bonds for $370,726, after receiving interest.
Instructions -
(a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as FV-OCI.
(b) Prepare the amortization schedule for the bonds.
(c) Prepare the journal entries to record the semi-annual interest on July 1, 2017, and December 31, 2017.
(d) Assuming the fair value of Aguirre bonds is $372,726 on December 31, 2018, prepare the necessary adjusting entry. (Assume that the fair value adjustment balance on January 1, 2018, is a debit of $3,375.)
(e) Prepare the journal entry to record the sale of the bonds on January 1, 2019.
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